Monday, November 30, 2009

I may never forget the moment when I drove into the Ikea garage on Friday morning and said, “Oh my God! Are they open?” I had fantasized that I might see the garage nearly full, but in my first glance, the lights were all on, but I couldn’t see any cars at all. It took only a second for me to realize that it would be impossible for any U.S. retail store to close for the day after Thanksgiving — they call it Black Friday, after all. And it took only another second for me to advance far enough to see that there were cars at the front of the garage, filling at least 20 percent of the spaces. It was similar to what you would see at this store on a normal Saturday.

Inside the store, and the various other stores I visited over the weekend, I saw a fair number of shoppers, but without the hype that often accompanies Black Friday and the Thanksgiving weekend. Shoppers were more relaxed, not feeling much pressure. This is partly due to the very limited discounts of this year, but also, I am sure, because shoppers were not putting much pressure on themselves. It was like they were saying, “I have all day to shop, and all I need to be ready for the holidays is these few things I have on my list here.”

That was true inside the stores, at least. Out on the highways on Friday, driving speeds were unusually high with shoppers rushing from store to store. I was startled by the scene of dozens of drivers blowing right past multiple police cars, part of an expanded police presence on the highways for the holiday weekend. Perhaps what this means is that people had limited time for shopping, but were determined not to stress out over it.

What I saw is consistent with the anecdotal reports from the extended shopping weekend. “People are going to buy for the holidays, but they’re not going to go crazy,” as Aaron Task summarized the situation on Tech Ticker. Multiple reports said that shoppers had lists and budgets and were sticking to them.

This may be bad news for retail, but it is good news for consumers, who are buying what they need and want, but not getting sucked into the retail frenzy. Economic statistics will record the reduced retail spending of the holiday season as a negative, but that doesn’t necessarily mean it’s bad for the economy. I would rather see consumers continue to pay down their credit card balances, because in the long run, what is good for consumers is good for the economy.

Sunday, November 29, 2009

Early reports from Black Friday indicate that the sales totals that day were about the same as last year. But this is not as positive a note as it might appear on the surface.

Last year, serious Christmas shoppers had already been shopping for three weeks before Black Friday hit. Black Friday was the day they finished their shopping, in many cases. This year, many did not get out to the stores until Black Friday, or perhaps Thanksgiving, the day before. They still hoped to finish their shopping obligations in just one day. This means that the total shopping is falling far short of last year.

The deep discounts of last year have not been repeated this year. If shoppers spent about the same amount of money on Black Friday, they bought fewer things — about a third fewer.

Shoppers were more easygoing, more relaxed, this Black Friday than on any in recent memory. They are not putting as much pressure on themselves. This confirms the surveys in which shoppers said they expect to spend less this year (30 percent less, according to one survey).

According to reports from Friday, far fewer shoppers are spending with credit cards this year. Last year, nearly half of shoppers were paying for holiday purchases with credit cards. This year, it is only about a third. Without the credit card, it is much harder for shoppers to spend more than they had planned.

In spite of the gloomy picture for retail revenue, there is good news for retail earnings. With the credit crunch, this season is certain to be more profitable than last year. This is because, with credit hard to come by, retailers have loaded their stores with much less merchandise than in any year in recent memory. With thinner stock, there aren’t many deep discounts. And by mostly clearing off the shelves, retailers will have less to liquidate at a loss in January. To the extent that this works out, retailers will surely want to repeat this process in coming years, even if credit becomes widely available again.

In financial terms, lower revenue with a higher markup can give you a higher profit. This is good news for retailers, but bad news for the manufacturers, importers, and shippers, who have less merchandise to manufacture and deliver.

Saturday, November 28, 2009

The story behind the financial squeeze gripping Dubai is eerily similar to what we have already seen in Las Vegas. The two places are similar to begin with. Both function essentially as isolated city-states. Las Vegas is a four-hour drive across the desert from Los Angeles; it and its suburbs contain most of the population of the state of Nevada. Dubai is a city-state in its formal political structure, with half of the population of the United Arab Emirates, at the end of the Arabian Peninsula.

And both seemed to be trying to build their economies on top of a style of excess, particularly when it came to buildings. It seemed like a brilliant strategy for a while, but began to break down in 2007, with projects canceled, workers leaving town, and businesses not earning enough to pay back the bank loans. In Las Vegas, there have been thousands of foreclosures and a collapse in real estate values. Dubai on Thursday suggested it might stop paying on its debts for six months.

The economic lesson from these two stories, if there is one, is that excess by itself cannot serve as an economic base. If a place wants to use excess as a selling point, there has to be considerable substance behind it to serve as the selling proposition. What Dubai and Las Vegas had to offer turned out not to be enough to pay for all that massive construction.

Friday, November 27, 2009

How much money did banks get from governments and central banks at the height of the financial system breakdown late last year? The Bank of England revealed on Monday that it had provided emergency loans of £61.6 billion (about $100 billion) to two British banks. The loans were repaid in January, but were kept secret until this week to avoid causing alarm. In the United States, the Fed routinely makes emergency loans to banks, but keeps them secret, not wanting the public to have any idea how frequent bank runs are. This year, as Congress has considered measures to audit the Fed, Fed chair Ben Bernanke has said loudly and repeatedly that this would cause substantial harm to the banking system, and this is probably the effect he is referring to.

Developments this week: A U.K. government report recommends that banks disclose the number of employees they pay £1 million or more per year. Previous salary disclosure discussions had focused only on executives, but the report estimates that more than 1,000 other employees are also paid more than £1 million a year. ◾ Dubai World suggested yesterday that it might miss payments due in December for $60 billion in debt. The idea of a Dubai insolvency has stirred fears of a new global financial meltdown simply because of the financial size of Dubai’s activities. Dubai World owes much of its debts to banks worldwide and to Japanese construction companies. Dubai’s liquidity has been hurt by last year’s decline in world oil prices and by the decline in value of $10 billion in U.S. real estate it purchased in 2006–2007. ◾ Banks made a tiny profit in the third quarter. Total earnings for FDIC-insured banks were less than $3 billion. During the same period, bank assets declined by $54 billion, or 0.4 percent, and staffing was cut by by 23,655, or 1.1 percent. Nearly all categories of bank loans are falling: real estate loans, down 2.7 percent from the previous quarter; commercial loans, down 6.4 percent; credit card balances, down 1.3 percent. ◾ When Colonial Bank and Taylor, Bean & Whitaker failed in August, Bank of America failed to maintain custody of at least $1 billion in collateral that it was holding as trustee in deals involving the two companies. That’s according to lawsuits filed separately by BNP and Deutsche Bank against Bank of America this week.

Thursday, November 26, 2009

It is not an accident that the Thanksgiving holiday comes at the end of one season and the beginning of another. It is a holiday created, first and foremost, to give thanks for having food to eat, and the most powerful time to do that is near the end of the harvest season when the stores of food have reached their maximum size for the year.

You only have to look beyond this particular moment to realize that, as winter wears on, the amount of food that is stored away has to decline. This is the nature of food: we are, every day, deciding how much to eat today and how much to save for tomorrow. If we are giving thanks for food, this can serve as a reminder to be thankful for every fleeting thing that we build our lives out of — to be thankful even when everything is changing.

The tendency, sometimes, is to be disappointed at the things that are no longer here or that are not here yet. Life is sunnier, though, and you live your life in a bigger, bolder way, if you don’t limit your thankfulness to the here and now, or to the most permanent and reliable things you enjoy in your life. This Thanksgiving, be thankful for everything that helped, however briefly, to bring you to where you are. Also be thankful for everything you are prepared to come upon in the future, even though the actual shape of the future is unknown. When everything is changing, you can still feel thankful.

Wednesday, November 25, 2009

Traffic is different today, on the day before Thanksgiving. And it’s not just that traffic is lighter on commercial through streets and heavier on highways. The traffic has a different character. An unusually large proportion of drivers, the highest of any day of the year, don’t quite know where they are because they are going somewhere they don’t go often. They are more hesitant. When they stop at a stop sign, they may take a second longer to size up the intersection before they proceed. They might be reading the street signs. They act like they’ve never been in this town before — and in many cases, that’s true.

The behavior of the traffic on the day before Thanksgiving must be maddening to people who otherwise drive only in rush hour, a time when they can expect nearly all drivers on the road to be quick and decisive. You can be quick and decisive when you’re driving to the same place for the 1,000th time. It’s not a realistic pattern to expect when you’re going someplace for the second or third time, as many people are today.

Patience and caution are helpful traits to adopt when you have to deal with a bunch of newbies on the roads (or anywhere else, for that matter). Patience, because it takes everyone longer to figure things out when they’re seeing them for the first time. Caution, because people who are in unfamiliar territory are likely to see things differently, and to make decisions you might not anticipate. I wish safe travels for everyone who is going somewhere today.

Tuesday, November 24, 2009

The CDC is reporting a decline in U.S. flu cases. The CDC’s numbers are potentially misleading, but are confirmed by other measures. It is now safe to say the H1N1 flu really did peak in August.

The CDC’s measures can be misleading, as they are mainly influenced by the number of doctor visits, which in turn are strongly affected by the hype surrounding the flu. Health authorities engineered an avalanche of media reports about flu at the end of September and in the first half of October to try to persuade people to get the H1N1 flu vaccine. The scare tactics worked. They also scared lots of people into thinking they had the flu, and when they went to the doctor, many got tested, and sure enough, nearly half of them did have the H1N1 flu. The spike in flu cases confirmed during that period does not indicate a spike in flu during that time, though, just an increase in testing, as other measures showed flu at a much lower level than during its August peak.

The flu hype certainly faded as we went into November, so the decline reported by the CDC also has to be taken with a grain of salt. Yet the picture coming from the CDC of a substantial decline in flu this month is probably true because it matches other measures, based mostly on self-reporting. These show a total rate of flu barely half that of late September and October, and perhaps a fifth of the rate of the second half of August and first few days of September.

According to one epidemiological estimate, based mostly on lab tests from people who appeared healthy, about 14 percent of Americans came down with H1N1 flu during the summer, and if I can extrapolate that, that would mean about 4 to 5 percent caught it in the fall — with most showing no more than vague, fleeting symptoms. The first wave, then, was over long before anyone could have produced a vaccine. The current fuss over the way the vaccine was produced and delivered is largely academic, at least in the United States.

Doctor-visit reports from Canada are still showing an increase in H1N1 flu, but remaining at a much lower level than seen in the United States. There, the vaccine probably did arrive before the flu peak.

There will be a second wave of H1N1 flu in the United States during the winter months, and probably again during the following winter, but the first wave was so large that any subsequent wave would have to be smaller — too small to notice, if we weren’t all looking for it.

Across the northern hemisphere, there are concerns about the spread of H1N1 flu, but the facts so far are not living up to the worst fears. This is particularly so with an epidemic in Ukraine in which more than one fourth of the population was thought to have come down with flu. The Ukraine epidemic is worrisome because of the number of deaths reported, even though tests so far suggest that most of the cases do not involve flu. This means that the problem is probably a different infectious disease. At this point, determining the cause and nature of the Ukraine illnesses ought to be a greater priority than the mop-up work remaining to be done for H1N1 flu.

Monday, November 23, 2009

An ABC News/Washington Post poll released over the weekend shows the personal impact of job loss in the United States. The headline number: 30 percent have seen a household member lose a job within the last year (or have lost a job themselves). That’s a number to rival the Great Depression, and it helps to explain why consumers are so downbeat about the economy.

Another number that sheds some light on this is the number of people who were surprised when a job loss occurred: 52 percent. This suggests that people are taking economic conditions personally. If so, consumer sentiment could fall substantially as millions of additional job cuts occur over the next year.

A more encouraging note from the survey: nearly half of respondents believe the economy is starting to improve, or will do so within the next few months.

Sunday, November 22, 2009

Al Gore was on Saturday Night Live last night, appearing in a Weekend Update bit to complain about how hard it is to get people to pay attention to climate issues. Science and reason aren’t working so well to persuade political leaders, he said, but he had a plan B:

I’m going to start acting crazy. . . . I think it’s crazy that our politicians aren’t more worried about the climate crisis, so it’s time for us to out-crazy the crazy.

Within this joke, there is a serious point about the typical approach of management by failure. Waiting for a problem to grow serious enough to do damage in a dramatic way puts us at a distinct disadvantage with some problems. If we wait until the sea level rises enough to flood Interstate 95 before we respond, we miss the chance to avoid, at a relatively modest cost, the extensive damage that would accompany that degree of climate change.

Saturday, November 21, 2009

Why is money so important? Why does it matter that the financial system, and with it, people’s ability to use money, is breaking down?

This may be easiest to see with a metaphor taken from biology. Any living organism needs water to carry materials into and out of cells. The cells are where the action takes place in an organism, so if there is less water, the action slows down.

This is why, if you have an illness, water may be the first recommendation you hear (along with rest). Recovery and healing are a body’s natural responses to illness, but when you are thirsty, these processes slow down. If you have enough water at the cellular level, you recover faster.

When money is scarce or uncertain, or impaired in some other way, it is as if the economy is thirsty. The action in the economy is the action of individuals, but money makes it easy to transfer work and its results from person to person and from place to place. When there is a problem with money, the result is less action, and the whole economy slows down.

There are quite a few problems with money right now. Bank deposits and other ways of storing money are not as safe as they were two years ago. The credit card transaction network is under assault from criminal organizations, along with their collaborators inside more than a few banks. Many consumers have become wary of using their debit cards because of the risk of hidden transaction fees. The exchange rates between currencies have gone through awkward adjustments this year, and that will continue into next year, and perhaps beyond, as there is a huge risk of inflation in some currencies, but only a slight risk in others.

The result of all these problems with money is a shift in the way people work. You see this in its most stark form in the boom in subsistence farming. Growing your own food might be hard work, but one thing you can say for it is that it is one thing you can do, assuming you have land to do it on, when your access to money becomes uncertain. In many other smaller ways, people are on their own, having to solve their own problems because they are unable to buy a solution.

When money isn’t working, the people responsible for economic policy do what they think they can to get money working again. The rest of us have two other angles we can look into to alleviate the problem. One of these, which I alluded to already, is self-reliance — getting better at solving our own problems. The other, though, is as modern as self-reliance is ancient. This is the use of technology to get better information on the things we’re trying to do. Most of the Internet didn’t exist yet during the last recession, so this is basically new. Money ultimately acts a form of information anyway, so it isn’t so strange to see information being used as a substitute for money.

Friday, November 20, 2009

The FDIC is taking steps to encourage consumers to keep their money in the bank, emphasizing that in the case of a bank failure, the FDIC is legally obligated to pay insured deposits “as soon as possible.” This point is significant to anyone worrying about inflation and the limited size of the FDIC’s line of credit with the Treasury. The FDIC’s argument to consumers emphasizes the idea of keeping their money safe, but the only thing that will really persuade consumers to keep more money in the bank will be higher interest rates, and that will not be happening for the next five years, if you can believe the statements coming out of the Fed.

Developments this week: Treasury Secretary Tim Geithner urged Congress to hurry with financial system regulatory reform, hinting at the risk that a new Wall Street breakdown could derail any economic recovery. ◾ Congress is considering a measure to change the FDIC’s assessment base from a bank’s deposits to its assets. The rationale is that it is usually a problem with a bank’s assets, rather than its deposits, that leads to a bank failure. A problem with this approach, though, is that it discourages banks from keeping extra assets. This might be resolved by exempting the safest assets, such as cash. ◾ Calls to dismantle the FDIC and eliminate deposit insurance continue to come from financial analysts who have failed to learn the lessons of history. It is worth noting that none of the people who are calling for an end to deposit insurance appear to have any substantive understanding of economics. ◾ A week ago, the NCUA closed Ensign Federal Credit Union, based in Henderson, Nevada, with 7,900 members and $98 million in assets. Member accounts were moved to EDS Credit Union. ◾ Residential real estate values will continue to fall, with construction down just 30 percent from the bubble levels of last year, mortgage delinquencies at the highest rate ever seen, and Congress’s recent extension and expansion of the home buyer tax credit. All this puts more pressure on bank balance sheets, as about half of bank assets are based on real estate.

There was one small bank failure tonight: Commerce Bank of Southwest Florida, with one office in Fort Myers. The formerly high-flying banking culture of southwest Florida has been hit with the second-largest concentration of bank failures in the country, behind only suburban Atlanta. The failed bank had $77 million in deposits. The cost for this bank closing is estimated at $24 million. Deposits and assets were purchased by Central Bank, a Minnesota bank that has been acquiring failed banks at a rate of one per month.

Thursday, November 19, 2009

Well, that’s what you might say if you’re an average worker. For years, the average work week was more than 40 hours. It has been falling, though, and in the current recession, it has fallen to a surprisingly low level of 33 hours per week. That means an average worker is one who works four days a week, rather than the traditional five.

It’s not really that people are working four days a week. There are those who work only two days a week, and they bring the average down. If someone works two days a week at each of two jobs, they really bring the average down, because they’re counted twice — the labor statistics don’t have a way of bringing a worker’s two jobs together. On the other hand, millions of workers who previously worked five days a week are now working just four as the result of employer cutbacks. Others work four days a week, but work longer hours, as employers seek to cut their employees’ commuting costs.

Still, less than half of workers are working the traditional 40-hour Monday to Friday workweek or an approximation of it. This is a cultural transition point about as significant as learning, around 1980, that less than half of children live in a household with both of their parents. Societal institutions are still built around that norm, but it is not the common situation anymore.

Wednesday, November 18, 2009

“U.S. consumers say they are not likely to shop without the big price cuts they saw last year,” says a new Reuters story about holiday shopping. The story cites an America's Research Group survey that suggests that consumers are not eager to go shopping for presents.

A repeat of last year’s discounts, with “after-Christmas” sales starting the day after Election Day, would be impossible, though. Last year, retailers had bloated inventories and had to cut prices as much as their competitors to get shoppers into the stores. The result was the most aggressive discounting in any Christmas shopping season ever.

This year, retailers aren’t in any mood to risk a repeat of that, and they couldn’t get the financing to overstock their shelves even if they wanted to. The downward spiral at CIT Group, traditionally the largest inventory lender to smaller retailers, has sharply limited how much some stores can stock this year, while losses at large retail chains such as Best Buy also see them carrying much thinner inventories.

Without huge inventories, there can’t be huge sales. Stores will be running out of many items before Christmas even without price cuts. With the thinnest Christmas-season inventories ever, a real 70-percent-off sale, of the sort that we saw so often last year, could mean that the shelves are empty before you arrive in the store.

To try to get shoppers to buy, retailers will do their best to create the illusion of deep discounts by showing exotic-looking items with prices so high that they can easily take 50 percent off, then 75 percent. This will work to an extent, but many shoppers are likely to hold out for real bargains, and they may end up buying nothing at all, or only token presents for their family members.

Some of the shoppers who say they insist on deep discounts in mid-November are only bluffing, or kidding themselves, and may end up buying anyway when mid-December rolls around. That could make this year the latest Christmas shopping season in more than a decade. Christmas shopping has been coming earlier and earlier in recent years, with the midpoint of the season hitting on Black Friday in 2007 and the weekend before Thanksgiving in 2008. This year, though, as shoppers hold out, the midpoint of the season might not come until the middle of December.

The lack of deep discounts at least means retailers that plan the season well won’t get stung the way they were last year. A retailer that plans for sales that are 10 percent less than last year may make a nice profit, despite the decline in revenue. And retailers that plan for sales that are about the same as last year will have a decent shot at breaking even.

Tuesday, November 17, 2009

Nouriel Roubini of Roubini Global Economics wrote on Sunday that the U.S. job market is sure to get worse at least through 2010, and could remain terrible for years after that. His advice to workers: “if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down.” He has a policy suggestion that could make things less bad, but the political chance of it being implemented is near zero, and the risk of bankrupting the country if it were to be implemented is considerable. If you have a job, the chance that you will be unemployed for the next five years is large enough to take notice of; if you are unemployed already, that chance is much larger.

For many of us, the issue is not about waiting for things to get better, but finding a way to survive until things get better. Strategies might include radical personal cost-cutting, such as canceling television and telephone contracts, cutting your own hair, baking your own bread, and heating only a few rooms in your house during the winter. If you have a quarter acre of land, subsistence farming might be an option (if not now, then when April rolls around). You might turn one of your hobbies into a business, even if you can only hope to make $20 a day at it. If you are more fortunate, you might just need a college degree, an advanced degree, updated training, or some sort of personal makeover to get your next job. Or, if nothing is going right for you, your plans might include selling everything, moving to a warm climate, and living in a tent.

It’s hard to believe this is America where we’re talking about this, but we are facing a situation where millions of workers will be unemployed for five years or longer. Congress lacks both the political will and the financial means to create jobs on a scale that would keep this from happening, unemployment benefits will absolutely not be extended for five years, and food stamps aren’t enough to keep you going. The job prospects for workers without a college degree who have been unemployed for more than one week are literally the worst they have ever been, so it’s foolish to just hope that the job offer you need will arrive next week. Can you survive for four years after the unemployment benefits run out? Yes, you can — but don’t wait till after the holidays to start figuring out how you might do that.

The bottom line is that it is your responsibility to make your household budget add up whether you have a two-income household, a one-income household, or a zero-income household in which the last unemployment payment is a distant memory. Don’t be afraid to look at those numbers and find ways to make them work — because for the first time since the New Deal, Uncle Sam is looking at us and saying, “This time, you’re on your own.”

Monday, November 16, 2009

New economic reports in the coming weeks will tell us that the increase in economic activity in the United States during the summer was mostly a seasonal event. Home prices, for example, increased ever so slightly, but will have to fall more wherever there is more housing being built on top of the substantial oversupply that already exists. Already, the unemployment rate, which held steady as millions of unemployed workers took summer vacations, has resumed its increase. And consumer sentiment has fallen sharply as the sunny days of summer and the excitement of the Clunkers program fade from memory.

I hope people will not be unduly discouraged by indicators that seem to say the recession is still holding on. The fact that the economy could support a seasonal bounce shows that things are not so terrible. The economy, even as it retrenches and reshapes, still has considerable strength. It is nearly holding its own.

Another reason for hope is that the recession does appear to be over or ending in much of the world. Economic growth elsewhere will eventually help the U.S. economy, creating more demand for U.S. exports. If the coming collapses in commercial real estate and credit cards and the subsequent bank failures do not further frighten the U.S. economy, the U.S. recession will surely be declared over with next summer’s bounce.

Sunday, November 15, 2009

Disappointment is the core emotion behind an economic recession — and it is not hard to find disappointment in the current state of the economy, or in the economy of three years ago that gave birth to the recession.

This is a strange observation to make, however, when you consider the financial circumstances of that time. The stock market was near its peak and there were more millionaires than ever before. Millionaires, you would think, should be feeling exuberant — yet surprisingly often, people who become millionaires find their new status a disappointment.

It is not that they did not want to be millionaires. Most worked hard to reach to reach that level of financial success, and when they did reach it, they felt that the achievement had validated their efforts. Yet their millionaire status did not amount to as much as they had hoped, and there is where the disappointment lies.

On the surface, you would think that people work so hard to reach millionaire status because they love money or the material abundance that goes with it, but if you really love money, you love your first five dollars, and you are happy with your success long before you reach the million-dollar mark. But when people struggle for years for millionaire status, it is almost always in the hope that being a millionaire will make them important. And in this, they are disappointed.

You can see why someone would think millionaire status would make them a VIP — a very important person. That’s the mythos of millionaires, and it was true enough barely 50 years ago. Back then, a few journalists actually compiled lists of millionaires — you could hope to get on an exclusive list. But since 1997, when at least one in 50 people in the United States is a millionaire, the only lists of millionaires are mailing lists. Being a millionaire means you are sure to get mail from advertisers wanting to sell mattresses, vacation time shares, and cosmetic surgery. When you think about what 1 in 50 means, you realize that every time you go to the supermarket, several of the shoppers in the store are millionaires, trying to decide between Heinz and Del Monte like anyone else. If you can’t pick out the millionaires, how is anyone supposed to pick you out after you become a millionaire? Millionaire status means so little now that people who watched the 2000 reality show Who Wants to Marry a Multi-Millionaire? told me that the show’s mystery bridegroom didn’t seem to have much going for him — and they weren’t being facetious, that really was their automatic reaction to a millionaire on television. So anyone who hoped that just being a millionaire would make them socially successful would have to discover that it was not nearly enough by itself.

Just to make this disappointment more stark, the period from 2006 to 2007 saw more than a million homeowners become millionaires from the stock market and real estate bubble, at the same time that they were struggling to avoid foreclosure after their variable-rate mortgages reset. Some were fortunate enough to keep their jobs and sell almost everything else they had in order to keep their homes. When it hits you that you are a house-poor millionaire, it’s hard to avoid reaching the conclusion that the system is stacked against you more than you thought.

Add the struggles of some of the most financially successful people in the country to the more numerous stories of people who lost jobs and homes during the same period, and the economy was pushing against an unprecedented wave of disappointment. It makes perfect sense that what followed was the worst economic crash in a lifetime.

The wretched irony of the disappointed millionaires is that there are much easier ways to be important than by amassing a million dollars. These days, a person who is in outstanding physical condition is more rare and more envied than a millionaire is, yet exemplary physical fitness is a status that the average person can hope to achieve in a mere 3,000 hours, with less hard work and less uncertainty than a student goes through to earn an MBA. And there are easier ways than this. How hard is it to stand for something, to pay attention to people . . . to be a loyal customer? Being important to people in these ways, and a hundred more you could think of, is not always easy, but it is a lot easier than becoming a millionaire.

If you are a millionaire who is asking, ”Is this all there is?” you probably already realize that that makes you a big financial target — there are people who will try to create the momentary illusion of importance for you so they can get your money. There is a better answer, of course, and it comes from going back to the question, “What was I really looking for all this time?” and not being afraid to spend your time finding better answers to this question.

Saturday, November 14, 2009

The world will come to an end on December 21, 2012, the last day of the Mayan calendar, with a cosmic smash-up between Earth and a mysterious planet known only as “X.” I know it’s true because I saw it in a Hollywood movie last night. Also because NASA has issued an official denial of its role in the cover-up.

Well, okay, not exactly. The end-of-the-world story is not true at all. And not just because December 21 just happens to be Humbug Day and “X” just happens to be the name of a forthcoming album by satirical Christmas band Bah & the Humbugs (a band that I just happen to be a member of). No, the end-of-the-world theory is wrong because people got the planet X prediction all wrong.

Planet X is not some mysterious planet in an invisible orbit that we are going to discover when our planet collides with it three years from now. The real “X” is what our planet is going to turn into after everything that takes place in 2012. It’s “X,” or unknown, because we’re just not in a position to foresee how that year is going to come out.

I see so many threads of change converging on or around the year 2012 that I’m prepared to say that everyone who thinks they know what that year is going to be like is wrong. There are some pretty wild predictions out there for 2012, coming from relatively conventional sources. Just a few examples: Arctic sea ice melts away completely (scientific study reported in National Geographic), “a rare celestial alignment creating forces that have not been experienced since last such alignment 25,625 years ago” (Gregg Braden, author of Fractal Time), the end of the Republican Party (Daily Kos, among others), the peak of world oil production (International Energy Agency, though whether it really predicted this depends on who is reading its 2007 report).

I’ve written about the changes in the role of knowledge and in interior lighting technology, two highly visible changes that I think are coming in 2012. At the same time, some of the predictions from less familiar sources must also be true, in magnitude if not in details. Putting together the convergence of all these predictions around the same time creates a scale of change we’ve never seen in any one year before. With that, I have a feeling that all the specific predictions we’re looking at are small stuff compared to the totality of what will happen.

And with that on the way, the possibility of the world coming to an end is not a completely bad way of looking at it. With so much uncertainty on the horizon, it takes away the value of the familiar cycle of planning and procrastination. You can’t plan for your encounter with “X” — not in any useful way. And if there is something you want to do, you may as well get started on it now. You don’t have to really believe in the story of planet X and 2012 to decide that procrastination no longer makes sense.

Friday, November 13, 2009

Developments this week: CIT Group is trying to maintain business as usual in bankruptcy, though layoffs are probably coming as soon as January. A hearing December 8 is expected to rubber-stamp the company’s reorganization plan, but that is never a sure thing in a bankruptcy of this magnitude — the 5th largest in U.S. history. As CIT cuts back, hundreds of small retailers and their suppliers are expected to close. ◾ Bank of America is reportedly having difficulty finding outside candidates to be its new CEO. An inside candidate, someone who is already familiar with the company’s operations, is probably a better idea anyway. ◾ The FDIC has approved a plan for prepayment of deposit insurance premiums. Banks will pay estimated premiums for 3-plus years. This should provide enough liquidity to keep the FDIC going through May. ◾ The FDIC took emergency action, not announced officially until late this evening, to keep the credit card business from collapsing, by temporarily extending the safe harbor provision for its guarantees of securitized credit card debt, along with other bank obligations. The credit card time bomb is now set to go off March 31. ◾ The Fed announced new restrictions on debit card and ATM overdraft fees, permitting banks to charge them only with the customer’s permission. Checks are not covered under the new rules. The rules go into effect July 1. Banks will lose about $30 billion a year in fees.

Two more banks along the Gulf Coast of Florida failed tonight. There have been a cluster of failures in this region, not because its real estate was especially hard-hit compared to south Florida, but perhaps because its decline began sooner. Of the 11 Florida banks to fail this year, about half have been on the Gulf Coast. The two banks to fail tonight were Orion Bank, with 23 offices and $2.4 billion in deposits, and Century Bank, with 11 and $631 million. The successor for both banks is Louisiana-based Iberiabank, which is getting a 1.5 percent discount on the deposits and is buying 90 percent of the assets. The cost to the FDIC for the two closings is estimated at slightly under $1 billion.

The discount for the deposits is unusual, but the FDIC decided it made sense as part of a deal in which it would sell most of the assets of the two failed banks. Usually in good economic times, and in a few cases this year, banks pay a premium of 1 to 2 percent to acquire the deposits of a failed bank.

Orion Bank had about 10 percent of its assets in non-performing loans and had been operating under a Fed cease-and-desist order since August. The bank had become the owner of or was in the process of foreclosing on high-profile office buildings and other commercial real estate projects all across the region.

The Office of Thrift Supervision (OTS) gave Century Bank 10 days to find a buyer on October 22, after it rejected the bank’s capital plan. As of June 30, 20 percent of the bank’s loans were behind on payments. The OTS had issued a cease-and-desist order on August 11, saying the bank had inadequate capital, had violated flood insurance regulations, and had been violating the Truth in Lending Act.

Century Bank is not connected to Century Bank of Florida, which operates in the same region.

Iberiabank is a regional bank that previously had only a token presence in Florida, consisting of the out-of-state branches of a previous acquisition.

In California, federal regulators closed Pacific Coast National Bank, a small bank with offices in San Clemente and Encinitas, along the coast north of San Diego. It had $131 million in deposits and just slightly more assets. Sunwest Bank is acquiring the deposits and assets.

Pacific Coast National Bank had appeared healthy enough a year ago to receive $4 million in TARP funds from the Treasury. It discovered in April that its loan portfolio was not nearly as stable as it had appeared, and by August, regulators were ordering it to improve its financial condition.

Prior to this month, no TARP recipients had failed, but in recent days, we have seen the CIT bankruptcy and the failures of United Commercial Bank and now Pacific Coast National Bank, and observers warn that at least 1 in 20 TARP banks is in some kind of financial distress.

Thursday, November 12, 2009

Recent headlines underscore the risks associated with drugs, including drugs popularly understood to be relatively safe. The stories show not only the inherent risks of drugs, but also the difficulty people have acknowledging those risks.

The first story involves aspirin. A standard-of-care revision in the United Kingdom takes back that country’s previous recommendation of a daily aspirin regimen to prevent cardiovascular disease. Aspirin is not as effective at this as previously thought, creating a negligible decline in deaths. A review panel concluded that for most patients, the benefits are less than the risks, specifically the risk that daily aspirin could cause internal bleeding. That too is an uncommon occurrence, but more common than the benefit an aspirin regimen might provide. Aspirin may still be used in this way in patients who already have cardiovascular disease, especially in patients who have had heart attacks, but doctors need to weigh the risks and benefits in each case.

Acetaminophen, once thought to be safer than aspirin, is also under scrutiny again. Four months ago, the Food and Drug Administration added new restrictions on the popular pain reliever because of its capacity to cause liver damage. Acetaminophen has been shown to cause fatal liver damage on rare occasions even if the drug is used in the intended doses and only for a day or two, but the risks become emphatic when people exceed the recommended amounts — easy to do, as acetaminophen is an additive in thousands of drugs, and that fact is not always clearly disclosed.

A risk of liver damage is bad enough, but now we learn that acetaminophen may trigger asthma. A study at the Vancouver Coastal Health Research Institute reviewed data on 425,000 subjects and found that acetaminophen use increases the risk of developing asthma in the following year by 60 percent in children and 75 percent in adults. There were higher risks with higher amounts of the drug, hinting that the drug may be the cause of many cases of asthma.

A separate study last month found that acetaminophen appeared to reduce the effectiveness of childhood immunizations. It has long been known that drugs can interfere with each other, but this particular combination created an effect that had not been anticipated. It is a concern that is particularly relevant now as acetaminophen may be undermining the ongoing influenza immunization campaign.

Finally, there are the many recent investigations into the deaths of public figures that ultimately concluded that the deaths were simple adverse drug experiences. The prescription drugs involved, it turned out, had been properly prescribed and used in accordance with the prescription, or nearly so. In some of these cases, prosecutors were absolutely convinced that some kind of abuse must have taken place, not wanting to believe that a person could drop dead from a routine prescription drug. All the evidence pointed in that direction, though, and charges against the prescribing physicians could not be pursued. Although there has been a flurry of these cases in recent months, each one seems to involve a different drug, or combination of drugs — telling us that it is not a single drug that is risky, but drugs in general.

None of this, of course, should come as a surprise. People have been cautious about the use of drugs since ancient times, long before there was any science to validate that caution. National authorities limit the availability and packaging of most drugs specifically because of the dangers involved. Most drugs in common use have been only lightly studied, so it is to be expected that scientists would continue to learn new information about their effects.

I don’t believe that we are headed for a future in which drugs become less important, but we may be using drugs more systematically in the future. As we learn more about the circumstances in which drugs can be used to good effect and those in which drugs are better avoided, we will be able to use them more successfully, and not so much in the pattern of trial and error that is the rule today.

Wednesday, November 11, 2009

Worried workers must think the U.S. economy has already had too many layoffs, but there are more on the way, many of them coming up in these five waves:

Now: corporate cost-cutting. The third quarter earnings reports that stood out were the large companies that returned to profitability in the quarter as a result of the layoffs they announced last year. Many have completed their planned layoffs and are preparing to announce more. Other companies that were reluctant to undertake layoffs now see them as their best chance of returning to profitability next year. Adobe, Electronic Arts, AOL, Sprint Nextel, Sun,

December/January: local government budget cuts. Squeezed by declines in both property values and wages, their two traditional tax bases, local governments have little choice but to cut services and lay off staffers. The biggest wave of layoffs will come with the new budgets in January and will surely push national unemployment over 11 percent.

January/February: retail closings. Some of the retailers that barely made it through last year’s Christmas shopping season closed their doors in the weeks that followed. That will happen again, and next year’s closings could be just as big as this year’s.

June/July: state government and school budget cuts. It will be a similar story with government units that start their budget years in July, especially states. Many states are seeing revenue fall well below the deep cuts they budgeted in June, and they will have to make more cuts next June, if not sooner.

One year from now: economic recovery phase-out. The federal economic recovery spending winds down after September 2010, and employers that depend on that funding, in areas such as construction and alternative energy, will have to start cutting back when next summer ends.

That’s five more waves of layoffs, totaling millions of job cuts, that we can plan on. These are hitting at a time when hiring is the lowest it has ever been, in proportion to the size of the labor market (yes, it’s worse than the Great Depression in that respect), so unemployment will go up. After these waves of layoffs, there will be more job cuts to follow, as the economy readjusts, but there is reason to hope that those will be more spread out, not forming the discrete waves that we will be seeing in the coming year.

Tuesday, November 10, 2009

I’ve commented a couple of times about the many high school graduates who aren’t going to college this year because they don’t have the money. But that doesn’t mean college attendance is down. The number of college students is the highest ever seen, largely because, for so many people, getting a job is not an option.

It’s one of the stark statistics of the current job market: if you are out of work for at one full week, your chances of getting a job within the next 26 weeks are pretty low. Of course, if you’re just entering the job market, with no college degree and no experience, your prospects are even worse. And if you can’t work, you might as well use the time to study.

That’s part of the logic behind the surge in college attendance. Most colleges aren’t participating in the increase, though. While attendance at most colleges is about the same as last year, community college enrollment is up about 10 percent this year, and that’s from the already high level of last year.

Community colleges are more accessible than other colleges, especially for local students, and while the quality of education may be lower, that gap seems to be shrinking. In a wired world, if you really want to learn something, it doesn’t matter where you are — at least not as much as it used to.

The price gap between colleges, though, continues to grow, and the cost of transportation is a bigger factor than it was a few years ago. Even at community colleges, many of the students don’t have the money to take a full schedule of classes. Or they don’t have the time. If it’s a challenge to fit two classes into your weekly schedule, the time constraints would also rule out going to a more distant college. The original idea of community colleges was to make college available to people who weren’t ideally situated for college, and that objective, apparently, is just as important now.

Monday, November 9, 2009

U.S. credit card transactions continued to slide in the 3rd quarter, and debit card use is not rising fast enough to make up the difference. Both MasterCard and Visa reported a modest decline in transaction volume and in the number of transactions. Credit card transaction volume fell 10 percent at Visa, with debit cards rising 5 percent, and it was a similar pattern at MasterCard.

The numbers indicate that Americans aren’t going shopping quite so often, and when they do go shopping, they are leaning more toward necessities, and paying more often with debit cards or cash. The good news is that card transactions are increasing slightly in the rest of the world, possibly indicating that other countries are starting to see an improvement in economic conditions.

One reason Americans are shopping less is the high cost of motor fuel. Gasoline prices have not fallen this fall, as the decline in the U.S. dollar has put upward pressure on world oil prices.

Sunday, November 8, 2009

The rapid spread of flu in the United States at the end of August and beginning of September and its rapid falloff since strongly suggest the role of stairwells, and specifically handrails, in spreading flu. This pattern fits only the busiest stairwells, though, the kind found between classes in most high schools in the United States. In a busy stairwell, a virus can travel from one person’s hand to a handrail, and from there to multiple other people’s hands within a span of a few seconds — just the kind of scenario that would account for the explosive spread of flu that occurred in the first weeks of school this fall.

Other hand-contact surfaces are surely also important, but it’s hard to think of one in a school setting that has such a large surface and such immediacy of contact as a handrail. I hesitate to suggest walking up and down stairs without touching the handrail, as a fall down a staircase can have health consequence even more serious than flu. Yet if the handrail is the key point of contact for flu, there has to be some kind of solution that will make this a less viable means of transmission for the flu virus.

Saturday, November 7, 2009

Two highway bridges in my area are scheduled to be replaced next year. In both cases, the fixes are coming slowly, and only after engineering inspections discovered that the bridges were no longer safe to use. Not far away, though, other bridges are not being replaced. These bridges are not officially abandoned, but the state does not have the money to rebuild them. One prominent river crossing that was taken out of service a decade ago is likely to wait another two decades before a replacement is put in place.

AOL News used one of the first stories in its new news service Sphere to remind Americans that bridges keep falling down, and that this year’s economic recovery spending won’t make a dent in the backlog of infrastructure projects. Transportation projects ended up being just a tiny part of the final bill, and half of Congress, it seemed, wanted to cut back even more.

As the Sphere story points out, the rate of infrastructure spending is less than half of what it was 50 years ago. We’re falling behind simply because we’re not budgeting the money. This is particularly vexing at a time when so many construction workers are unemployed. Building construction is not likely to make a comeback in its present form or anytime soon, so it would make economic sense to put more of these workers to work on projects like bridges.

Friday, November 6, 2009

Five more bank failures occurred tonight, including one that had the FDIC taking action in Shanghai. And there were many other stories this week about banks at risk.

The two largest banks in the United Kingdom are downsizing, selling off operations because of concern over their size and government support. Could something similar happen in the United States? A consensus is developing in the U.S. Senate that some sort of provision ought to exist to allow the government to break up large, high-risk banks, but some senators want to go farther and mandate the breakup of any bank that is large enough to be a risk to the economy, the banking system, or the deposit insurance system.

Those who are worried about how messy such a process might be can take heart from the relatively effortless way it is being done in the two giant U.K. banks. Citibank’s recent restructuring efforts also suggest that downsizing can be all in a day’s work. In the last year, for example, Citibank has considered selling off parts of its retail banking operations, state by state. Previously, it had considered selling or spinning off its entire retail banking operation.

AIG reported its second consecutive quarterly profit today, but warned that the stock market gains that have driven its profits may have run out. Without the run-up in the stock market, AIG would have lost about $2 billion in the quarter. AIG also warned that its insurance business, previously the core of the financial conglomerate, is declining rapidly, with premiums down 13 percent from a year ago. AIG is taking another $4 billion in federal money this quarter to resolve structural problems in two subsidiaries, one in aircraft leasing, and the other an insurance company that it was unable to sell. AIG has been trying to wind down its disastrous derivatives business, but it still has more than $1 trillion in potential liabilities, and all its restructuring will be moot if even minor problems develop in that portfolio.

On Wednesday, a merger was announced that could save First Keystone Bank. The bank, which has assets of half a billion dollars, has been operating under regulatory restrictions for several years, and has been losing money for the last four quarters. Most of its loan portfolio is residential mortgages and commercial real estate, and these have been problem areas for banks, even in Pennsylvania where real estate values have been more stable than in most of the country. Bryn Mawr Trust, which is barely twice as large, has agreed to buy it out in a deal that is expected to close in about six months. Both banks operate in the western suburbs of Philadelphia. Bryn Mawr Trust had been looking to expand by buying locations from other banks. This deal will double its number of branch offices and expand its territory southward.

Tonight there was a large bank failure with international implications. United Commercial Bank had $11.2 billion in assets, $7.5 billion in deposits, and 63 offices in the United States. In addition, it had an office in Hong Kong and a Chinese subsidiary based in Shanghai. The FDIC sorted all this out, turning over all the deposits and selling 90 percent of the assets to East West Bank. The U.S. and Hong Kong offices will become offices of East West Bank. The bank in China will continue operating without interruption, apparently retaining the United Commercial Bank name, but becoming a subsidiary of East West Bank. This arrangement has preliminary approval of the Chinese banking authorities and is expected to obtain final approval in due course.

United Commercial Bank was a San Francisco-based bank that was created to function as an extension of the Chinese banking system. It was founded in 1974, originally for transacting business between the United States and China, but soon expanding to provide broader banking services. It had acquired four other banks in the same niche in recent years. In obvious financial trouble last year, it received $300 million in TARP funds, an investment that can now be written off by the Treasury. This comes just days after the CIT Group bankruptcy wiped out $2.3 billion in TARP funds.

United Commercial Bank discovered in September 2008 that its financial statements were in error and, even after the removal of some senior executives, never quite managed to sort out its accounting mess. It had sought to raise capital from within China, but was restricted in doing so by banking regulations that limit the extent of Chinese ownership in U.S.-chartered banks.

East West Bank is also a Chinese-American bank, based in California (but in Pasadena, in the southern part of the state), with an office in Hong Kong and representative offices in Beijing and Shanghai. It is, prior to the current acquisition, only slightly larger than United Commercial Bank, with 71 U.S. offices and $12.7 billion in assets. At the same time that East West Bank announced the acquisition, it announced that it had raised $500 million in additional capital, most of it by issuing new shares to existing shareholders.

The United Commercial Bank closing is estimated to cost the FDIC $1.4 billion. However, given the dubious quality of the failed bank’s financial statements, the actual losses could be much higher.

Four small banks failed tonight, each with deposits of less than $200 million. The estimated cost to the FDIC for these four closings is $132 million. These bank closings, in order from largest to smallest, were:

Prosperan Bank, with three offices around the Minneapolis-St. Paul beltway in Minnesota. Prosperan lost $10 million in the first half of this year. In September, the FDIC ordered it to raise capital. The deposits and 87 percent of the assets are being purchased by Alerus Financial, a North Dakota bank that is creating a Minneapolis presence by taking over failed banks.

United Security Bank, based in Sparta, Georgia, a county seat in the central part of the state. The bank had a second office operating as Bank of Woodstock in Woodstock, Georgia, on the edge of the Atlanta metro, where so many other banks have run into trouble. The deposits and assets are being purchased by Ameris Bank, which bought out another failed Georgia bank just two weeks ago.

Gateway Bank of St. Louis. Deposits and assets are being purchased by Central Bank of Kansas City, from the other end of Missouri.

Home Federal Savings Bank, with two offices in Detroit, Michigan (no connection to banks of the same name in other states). The deposits and assets are being purchased by Liberty Bank and Trust Company, a New Orleans bank “with a focus on disadvantaged minority communities who traditionally have been underserved” that already had four offices outside Louisiana. Its two new offices will be its first presence in Michigan.

Thursday, November 5, 2009

This was the busy scene at The Farmers Market at Great Valley last Thursday. The farmer’s market sets up in the heart of a corporate center for three hours at lunchtime every Thursday. It has been running since September, and winds down for the season a week from today.

It’s hard not to admire the efficiency of the operation. It occupies a corner of a university parking lot, an overflow area that is otherwise only used for evening events. Thousands of people work within a few blocks of here and can stop by to buy produce on their lunch hour. The produce is at least a day or two fresher than anything that goes through wholesale channels, and less food gets damaged or wasted along the way. And the farmer’s market helps to build community by connecting the farmers, the university, and the workers in the employment center.

Wednesday, November 4, 2009

The U.S. auto sales reported for October suggest an industry operating at an even keel — not one in the kind of distress than many observers, including myself, had imagined. Sales were generally the same as in October 2008, the first time in two years that sales were not lower than the year before. This should not be taken as a trend, though, nor as a major accomplishment. If you remember the doom and gloom coming from Washington last October, that month set quite a low bar for the auto industry to clear. Still, auto dealers recovered from the post-Clunkers hangover faster than expected, and this is a reason to hope that auto sales could stabilize at a level around 1/3 lower than what was seen in the years before the recession.

The news is not good for General Motors or Chrysler, however. Chrysler sales are down 30 percent from a year ago. General Motors sales are up 5 percent, but these came as a result of the largest incentives of any automaker in recent years. The incentives are necessary, as General Motors still has a huge inventory of model year 2009 vehicles to clear out, including everything that is left of the Saturn and Pontiac nameplates. But the high incentives mean that General Motors is probably still losing money on most of the vehicles it sells. Worse news for General Motors, though, is that it has failed to sell either Saturn or Opel, two sales that it was counting on as part of its return to solvency. Instead, General Motors will wind down Saturn in the coming months and try to keep Opel going, though the division (which includes the Vauxhall nameplate) is continuing to lose money rapidly. At least the sale of the Saab division appears to be a done deal.

The news is much better at Ford, which saw sales increase by 3 percent from a year ago while its per-vehicle incentives fell 25 percent. With its recent financial statements, Ford showed a profit for the third quarter and said it could return to regular profitability in 2011.

Tuesday, November 3, 2009

When I stopped buying milk in February, I didn’t realize it at the time, but I was part of a movement. Around the same time, millions of people, in the United States but also in countries as far removed as Belgium and Argentina, looked at the soaring prices of milk and cut back sharply on their purchases, or stopped altogether as I did. Prices have fallen somewhat since then, but are still very high by any historical comparison, and milk sales have shown no sign of rebounding.

If milk is no longer a grocery staple for millions of consumers, though, this changes the shape of the supermarket. The traditional American supermarket layout is built around the milk. It places milk in the corner farthest from the entrance, in order to lead shoppers in a circle around the whole store. (This arrangement also allows milk to be moved in a very short trip from the loading dock to the display case.) Milk is so central to the supermarket experience that if you stop buying milk, it is logical to ask whether you still need a supermarket.

That reaction might seem extreme — is milk so important that it is the defining product of the supermarket? But it turns out it is. The short shelf life of milk is the main thing bringing supermarket customers back once or twice a week. Without milk, it becomes very easy to plan your supermarket visits just once or twice a month. Fewer visits, of course, means fewer impulse purchases, and a smaller selling opportunity for the supermarket. And some people will just stop going. If you aren’t buying milk, it is easy enough to skip the supermarket entirely.

I thought about this when, at one point this summer, I postponed my planned supermarket trip week after week until more than a month had gone by. No pressing need to make the trip ever came up. I had always thought of the supermarket as the source for a variety of fresh food, but:

Most supermarkets take a half-hearted approach to produce, and are a poor substitute for an actual produce market.

Meat is not affected by freezing nearly as much as the meat industry would want us to think — if it were, the average restaurant would have a hard time operating.

Other popular perishable food items, such as eggs, cheese, and orange juice, can last for weeks.

Ordinary groceries and toiletries have a shelf life of months or years.

It’s not so hard to make bread at home in a bread machine, with a food quality that no factory can duplicate.

Last week I got a mailer from a discount store that said, “Look how green we are now.” It wasn’t a reference to their environment achievements, but to their new produce section, which is part of their expanded emphasis on groceries. It truth, a discount store could easily handle produce nearly as well as the average supermarket. Discount stores have always sold candy and household cleaning supplies, so why couldn’t they add many of the standard non-perishable and frozen groceries too? It’s not really the same as buying food in a supermarket, but if you’re buying half your food at the produce market anyway, the discount store is probably good enough for everything else you need in an average week.

Under pressure from both sides, supermarkets will surely have to change in the coming years. Perhaps some of them will start taking produce more seriously, while others will compete directly with the discount stores. And I won’t be surprised if a few of them close down, or get bought out by discount store chains. Because there’s one change I’m sure of, and that is that more and more households will not find the need to go to the supermarket nearly as often as they have been.

Monday, November 2, 2009

Yesterday’s bankruptcy filing by CIT Group spells trouble for the Christmas shopping season. In theory, CIT should continue to operate and make loans during its Chapter 11 financial restructuring. Realistically, though, it won’t be possible for a bankrupt CIT to do all the things you would have expected of it just last year, including the inventory loans that put merchandise on store shelves, and there aren’t other lenders waiting in the wings to fill the void.

Store shelves, then, could be relatively bare. This could create a very unfamiliar shopping experience, at least for specific products and places. To show you what this would mean, I want to use a story of something that happened last week.

Last week, I wore out my computer keyboard and went to the local consumer electronics store to buy a replacement. I found the USB keyboard I wanted, and I noticed there was only one in stock. The store sold a wireless keyboard, and there was only one of those in stock too. Looking around the store, I noticed that there was only one box on the shelf for quite a few items that were on display.

This works out for the store — it doesn’t have to borrow money and pay interest to keep a large inventory. As soon as I checked out, an order for a replacement unit automatically went out, and was delivered to the store the next day, so it wasn’t out of stock for long.

At a consumer electronics store, a thin inventory means having only one unit in stock for many of the electronic devices you might want to buy. For a clothing store, it could mean selling only black military jackets. If the stores don’t have as much to sell, then whatever you were thinking of buying won’t be so easy to come by — either because the store is sold out for the day, or because it couldn’t stock that item at all. Wherever retailers and manufacturers can’t get inventory financing, inventories can only be thinner — in some cases, much thinner than you are used to seeing.

But it’s not just the inconvenience and limited selection. Wherever inventories are less than the store can sell, there won’t be any clearance sales. Of course, we couldn’t see a Christmas shopping season without sales, but only the well-financed items will be in plentiful enough supply to make it to the clearance sales with prices cut to levels that are less than you would expect to pay. Paying full retail price, or just 25 percent less, may come as a shock to shoppers who, last year, saw the first after-Christmas sales start the day after Election Day. Yet shoppers who wait for the sales may come back to find some store shelves picked clean.

With few deep discounts, and many items out of stock toward the end of the day or the end of the week, there will be fewer impulse purchases. Most shoppers won’t have time to go from store to store trying to find suitable presents, so they may just buy fewer and simpler gifts. If that happens, people will barely notice the difference on Christmas morning — the holiday, as in the story of How the Grinch Stole Christmas, is not strictly measured by the quantity or quality of gifts — but it could have a profound effect on the national economy. With retail results considerably less than last year, there could be more stores closing in January, new layoffs, and other economic repercussions from the CIT collapse lasting well into next year.

Sunday, November 1, 2009

Chronic fatigue syndrome is a medical condition so vague that there were serious scientists arguing for more than a decade that it did not really exist. Most of that vagueness is about to disappear because of the discovery described in Scientific American:

A virus, which had been known to scientists for a few years, was found in chronic fatigue syndrome patients. The researchers found the XMRV virus, which had previously been linked to forms of cancer, in 2/3 of patients with a chronic fatigue syndrome diagnosis, but in only 1/27 of other people. Finding this virus will give scientists a place to start to understand the mechanisms of chronic fatigue syndrome. After the cause is understood, the disease will probably be renamed to distinguish the majority of cases that are related to this virus, along with possibly other viruses that have similar effects, from the smaller number of cases that still have no known cause.

Lyme disease was originally misdiagnosed as chronic fatigue syndrome. Then scientists identified the bacteria that causes Lyme disease, and that discovery clearly separated Lyme disease from chronic fatigue syndrome, and the treatment for Lyme disease quickly came into focus. In the next three years, I expect we will see the same thing happen for the majority of cases of chronic fatigue syndrome.